Gold Forecast: Key Message For Gold

Last week's trading saw the gold market holding in a consolidation pattern, with both its high and low for the week registered in Thursday's session. As mentioned in articles from recent weeks, gold was seen as being in a countertrend decline phase, with that decline seen as complete at the 1384 swing bottom. With that, we are looking for another try at strength in the days/weeks ahead, with a key turn date (for a top) coming up soon.

Gold, Shorter-Term

In tracking the short-term action, the downward phasing of the 10-day cycle has been deemed to be in force in recent days, with this particular cycle shown below:

In terms of time, the 10-day cycle is at or into bottoming range, with the next short-term bottom expected to come from this same cycle. In terms of patterns, due to the configuration of the larger 34-day wave, the current downward phasing of the 10-day cycle is expected to end up as a countertrend affair - holding above the 1384 swing bottom, which is the last labeled trough for the 34-day component, which is shown below:

If the current downward phasing of the smaller 10-day cycle does end up as the anticipated countertrend affair, then its upward phase should see a push back above the 1454 swing top in the coming weeks, where a semi-important peak is projected to form. Going further, that move higher should also complete 5 waves up on the daily chart, and with that we should be looking for a significant correction to follow.

In terms of time, we have a good idea of when the next high is due, with the last mid-term turns calling both the February, 2019 peak - and the May bottom. More precise details of when this expected peak is due to materialize are noted in our thrice-weekly Gold Wave Trader report.

Stepping back then, higher highs going forward should be odds-on to peak the larger 72-day cycle, which is shown on our next chart:

On the chart above we can see the developing 5 waves up in Elliott wave. Once this pattern is complete going forward, the same should end up topping our 72-day time cycle, for what is expected to be a decent correction phase into early-Autumn. Having said that, due to the position of the larger-degree cycles that we track, that correction is favored to end up as a (albeit larger) countertrend affair.

Otherwise, in terms of price, until a higher level materializes it would currently take a reversal back below the 1397.00 figure (December, 2019 contract) to confirm the next downward phase of the 72-day cycle to be in force. This number should continue to rise in the days/weeks ahead, depending on the action seen in-between.

For the bigger picture, the larger rally phase is coming from the combination of the 154 and 310-day cycles, with the 310-day cycle shown on the chart below:

Stepping back, the bigger-picture assumption is that the larger 310-day wave will head higher into the late-2019 to early-2020 timeframe. From there, we should eventually see a larger percentage correction playing out, with the 310-day moving average acting as the expected magnet. That key moving average is currently at the 1309 figure and rising - but which will obviously be at higher levels by the time that this wave next troughs.

Gold Commercial Hedgers

As mentioned in prior articles, the commercial hedgers are holding a sizeable net short position, as shown on our next chart:

With the action seen last week, the hedgers have added another 10,000 shorts (approximately), which brings their current net short total up to 287,839 contracts - with the data current to the 7/23/19 close. With that, this puts the hedgers at their largest net short total in well over two years, and is seen as supportive of a market top (with the 72-day cycle) going forward. However, with the bigger cycles pointing higher, we still expect that decline to end up as a countertrend affair, holding above the early-May price trough, the last low for this component.

U.S. Stocks (Update)

In looking at the U.S. stock market again this weekend, our last correction came and went with the 45-day cycle, which ended up seeing a smaller magnitude decline than was originally expected. Here is that cycle once again:

Going further with the above, approximately 85% of the downward phases of this 45-day cycle will see a drop back to the 35-day moving average or lower, the recent expectation was for this wave to make our normal tag of the same - though that move was also favored to end up as countertrend, to be followed by higher highs. With the action seen last week, we were able to confirm this wave to have troughed at the 2973 SPX CASH figure, which is now a critical price going forward.

Stepping back then, we should expect to see a continued push to higher highs with stocks in the coming weeks, though this move up will be on shaky technical ground. With that, we are likely to set up another, slightly larger top in the coming month or so, one which should give way to a larger percentage decline into early-Autumn. Even said, that move is expected to end up as yet another countertrend affair, due to the configuration of our larger 360-day wave:

In terms of price, we had an open upside target with this 360-day cycle to the 3003.29 - 3112.42 SPX CASH region, which was recently met. In terms of time, this target had the best odds of being satisfied around the mid-July timeframe, which we have obviously seen.

Even with the above said and noted, due to the time considerations with this 360-day component - and in spite of the aforementioned technical divergences - the larger uptrend is expected to remain in force well into the Spring of 2020. From there, the next peak for this wave should try and form, giving way to a multi-month decline into its next trough - a decline similar to the one seen into the December, 2019 low.

The Bottom Line

The overall bottom line for the gold market is that a push back to or above the recent highs is favored to play out in the coming weeks, setting up for a larger-percentage correction into early-Autumn, a move which is currently favored to end up as a countertrend affair - to the larger uptrend. As for stocks, as long as the SPX can remain above the 2973 figure going forward, a continued push higher is expected to play out in the weeks ahead, but also is setting up for a decent peak - and then decline phase - into the month of September. This move is also favored to end up as countertrend, against the larger uptrend of the 360-day cycle into next Spring.

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Jim Curry is the editor and publisher of The Gold Wave Trader and Market Turns advisories - each of which specializes in the use of cyclic and statistical analysis to time the Gold and U.S. stock markets. He is also the author of several trading-related e-books, and can be reached at the URL above.